Guarantee To Do What? Ambiguity in Engineering Performance Agreements

A recent case from the federal district court in Hawaii showcases the dangers of ambiguity in engineering agreements and the potential liability of an engineer to an owner where the agreement “guarantees” specific performance. In Evergreen Engineering, Inc. v. Green Energy Team LLC, ___ F. Supp. 2d ___, 2012 WL 3150306 (D. Haw. 2012), Evergreen Engineering (“Evergreen”) contracted with owner Green Energy Team LLC (“GET”) to oversee construction of a biomass-to-energy (“BTE”) power plant. GET moved for summary judgment for breach of contract against Evergreen for failing to achieve a specifically guaranteed engineering result. The Court granted the motion for summary judgment as to the fact that Evergreen provided GET with a guarantee but denied the motion in part due to ambiguity as to the scope and subject of the guarantee.

In 2007, GET hired Evergreen to serve as managing project engineer for the BTE plant. The agreement between Evergreen and GET provided that “[o]verall plant performance guarantee will be achieved via guarantees by suppliers of individual equipment and the undertakings of the Contractor and certain project investors as well as by the undertaking of Evergreen in this Agreement.” In 2008, GET obtained cover source air permits for the BTE system on expected use of 201 tons of fuel per day. In 2009, an error was discovered that the BTE plant actually needed 240 tons of fuel per day to operate the system at the required efficiency level.

This error allegedly effected GET’s calculations regarding: feed stock volume, pro forma financials, economic viability, financing possibilities, and entitlements such as covered source air permits. GET moved for summary judgment on a breach of contract action claiming that Evergreen knew that the calculation for fuel consumption was incorrect and the BTE plant would not work as designed. Further, GET argued that Evergreen had guaranteed a specific result under the agreement that “the overall plant performance would abide by GET’s fuel requirements.”

The court found the guarantee language in the agreement memorialized Evergreen’s assurance regarding overall plant performance. However, the court also found that the contract was ambiguous as to the scope of the engineering consultant’s agreement. The court said that the agreement is “not so clear as to explain the scope of the guarantee or assurance or the specific contours of ‘overall plant performance.’” Thus, the court was unable to discern what the guaranteed applied to and held that there was ambiguity in the guarantee provided by Evergreen.

Finally, GET and Evergreen cited opposing non-Hawaii authority on the point of whether an engineer can be liable under a contract guarantee. Evergreen cited a Kansas Supreme Court case and an Eight Circuit decision that found an architect or an engineer may guarantee their work for a specific result. On the contrary, GET cited authority from a federal district D.C. court for the proposition that “a professional such as an architect or an engineer, like a doctor or lawyer, is not liable for a specific result.” The court did not find any Hawaii authority on the issue and refused to adopt either party’s view. The court instead held that Evergreen did guarantee “something” but did not decide what it guaranteed or the scope of the guarantee.

Bottom Line: This case is a good reminder for owners, engineers, and architects to be aware of the exact scope of the language used in a contract and the potential liability that state law may place on engineers and architects.

Author: Damian Brychcy

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